In New York, public schools are struggling with rising pension costs and a 2% tax cap as they plan for next year’s budgets. As the situation becomes desperate, one official warns that school security may suffer.
School districts face a daunting challenge as they begin drafting budgets for 2013-14: Rising pension costs alone could eat up most or all of their allowable tax-levy increase under the state’s tax-levy cap.
“It’s debilitating for us, terrible,” said Thomas DePrisco, a member of the Pearl River Board of Education.
Pension costs will increase nearly 40%, forcing cuts in student services.
District contributions to the pension system for teachers and administrators are expected to rise close to 40 percent next year. This increase could translate into hundreds of thousands of dollars for small districts and several million for larger districts, which will require raising the tax levy by 2 percent or 3 percent in most districts.
Since the state cap starts at 2 percent before adjustments, most districts will not be able to increase spending in other areas, from health insurance to curriculum materials, without making equivalent cuts to programs and staff.
Students are being punished.
“The numbers are punitive, a shocker,” said Kendall Egan, a member of the Rye school board and president of the Westchester-Putnam School Boards Association. “You’ve already filled up your cap. It’s hard to make your community understand that there is so much out of the control of a school board. We’ll be back to going line-by-line through our budgets, looking for all possible savings.”
Pension contributions will increase to about 16% of payroll costs.
Under state law, all school districts outside of New York City must contribute a percentage of their payroll each year to two pension systems, one for teachers and administrators, and one for support staff. The percentages are determined by the two systems’ past investment performances. Next year’s contributions are tied to the period between 2007-08 and 2011-12, when investment returns were down.
The New York State Teacher Retirement System recently notified districts that it expects to raise their 2013-14 contribution to between 15.5 percent and 16.5 percent of payroll, up from 11.8 percent of payroll this year. The employer contribution has varied between 6 and 9 percent of payroll in recent years.
The TRS fund, which pays pensions to retired teachers and administrators, has $88 billion in assets. It is paying benefits to almost 150,000 people, up from 100,000 in the year 2000. Its active membership — those who will receive future benefits — has increased from 225,000 people in 2000 to 277,273 this year.
Schools will start with a deficit.
The Valhalla school district expects to increase its Teacher Retirement System contribution by about $930,000 to more than $3 million, while its Employees Retirement System contribution will rise by about $91,000. These increases alone will require raising the district’s tax levy by about 2.5 percent.
“We start the budget planning process in a deficit and wonder how we’ll stay under the cap,” Superintendent Brenda Myers said.
Teachers’ pensions were protected under the property tax cap legislation but student services were not.
The property-tax cap, going into its second year, starts by limiting tax-levy increases to 2 percent, but the number can go up or down depending on several factors. Pension cost increases over 2 percent are exempt from the cap, which is little consolation for districts that are up against the cap anyway.
Politician wants to give teachers even more protection.
Assemblywoman Ellen Jaffee, D-Suffern, said she is considering proposing legislation that would exempt additional pension costs and perhaps tax certiorari payments from the cap.
“It could help stabilize the situation,” she said. “There are very real concerns about districts facing insolvency.”
‘rising pension and health care costs’ leading to ‘dangerous territory’
Ken Slentz, deputy state commissioner of education, said that rising pension and health care costs will result in people losing their jobs so districts can stay under the cap.
“Where are we headed?” he said. “Dangerous territory.”
Recent pension reform had little effect.
A key factor is that 86 percent of all teachers and administrators statewide are in Tier 4 of the pension system, meaning that they contribute 3 percent of their salary to the system for only 10 years and nothing thereafter. Tiers 5 and 6, created since 2009, require ongoing employee contributions but currently include only 8 percent of all members.
In a low blow that may have been meant to evoke fears related to the recent tragedy in Newtown, one official intimates that school security may suffer.
“The impact on our budgets is devastating,” Burrell said. “If we can’t raise tax levies, and taxes are already too high for many people, districts will have to make uncomfortable choices. Will districts have to choose between AP classes and security?”